Tight policy stance bolsters public finance: Central Bank

Tight policy stance bolsters public finance: Central Bank

ANKARA
Tight policy stance bolsters public finance: Central BankTight policy stance bolsters public finance: Central Bank

The latest tight monetary policy stance helped reduce borrowing costs, contributing some 6 billion Turkish Liras ($191 million) to public finance, according to economists at the Central Bank.

“Borrowing costs at auctions held by the Treasury re-issuances dropped by 40 basis points on average,” they said in a blog on the bank’s website.

“We estimate this decline in the borrowing costs to have contributed approximately 6.8 billion liras to the public finance,” they said in the report.

While tight monetary policy increases yields in bond markets through the monetary transmission channel, it supports the demand elasticity in re-issuance auctions through the predictability and expectations channels, they added.

The increased elasticity driven by predictability and credibility points to an increase in the risk-bearing capacity of banks, they said.

“Thus, it is considered that the Central Bank’s policy stance bolsters the financial system and contributes to public finance through the Treasury auctions,” they concluded.

The Central Bank started the tightening campaign in June 2023, hiking its key rate from 8 percent to 50 percent.

The bank launched the easing cycle in December by lowering its policy rate from 50 percent to 47.5 percent in a move that marked the first cut in nearly two years.

The bank is scheduled to meet on Jan. 23 to decide about the policy rate.

Last month, the bank said it would hold eight Monetary Policy Committee meetings this year, reducing the frequency of the monthly rate-setting meetings.